Good for Our Business, Industry'

Cigarette court ruling leaves room for interpretation, some of it positive

Published in CSP Daily News

OAK BROOK, Ill. -- The true effects of Thursday's ruling by a federal judge that Philip Morris, R.J. Reynolds and other tobacco companies are liable for violating racketeering laws won't be known for a while, but opinions on the 1,650-page decision were swift in coming.

Long-term, it's good for our business, David Schenck, senior category manager for Circle K Stores Inc., told CSP Daily News. I think ultimately it's good for the industry, too.

Judge Gladys Kessler wrote that for lying about the health effects of smoking, cigarette [image-nocss] makers would have to post on their Web sites until 2016 all documents they submitted to the case's prosecutors as well as transcripts of statements of former employees about the effects on health of cigarette smoking or research. Friday, R.J. Reynolds' Web site had this message: The Web site of R.J. Reynolds Tobacco Co. is currently under review by the company. Please check back to the site later.

The companies would also, according to Kessler's ruling, have to stop marketing cigarettes using the terms light, low-tar, ultra-light or mild. Both Altria Group Inc., the parent company of Philip Morris, and RJR said they would review the decision for possible appeal in the U.S. Circuit Court of Appeals for the District of Columbia.

Our preliminary review shows that there's some possibilities that in our opinion the judge may have gone beyond her authority in some of the relief she ordered, RJR spokesperson David Howard told CSP Daily News. Certainly, we're going to consider any and all of our options.

Schenck said from a retailers' point of view, the decision could awaken those at Altria Group, who may have lost touch with tobacco. The group also owns Kraft Foods and Philip Morris Capital Corp. and holds a 28.7% stake in brewing giant SABMiller. It also is believed to be interested in splitting its holdings into separate companies. Earlier legal rulings that had removed much of the financial liability the Justice Department had been seeking in the lawsuit were believed to be a key to Altria's plans to split the group. Kessler had written that she was not allowed to penalize the companies financially.

Schenck said he believed such a split would be good for retailers.

Granted, most of the PM organization hasn't been focused on lunch meats and salad dressings, but there are folks at the upper end of their other organization that have not been entirely focused on cigarettes, Schenck said. I think as an organization they have not had as much concentration or emphasis placed on (cigarettes) as if it were their only business. Making it their only business will get them back into being competitive with the other guys that are starting to make headroads into some of what has been perceived as PM's arena.

For example, PM is trying to become the name in menthol the way they are in non-menthol, and I don't think they've been focused like they should have been on doing that appropriately, he continued. I think it has hurt our (c-store) business to an extent. They keep throwing more buy-one-get-one-frees out there to draw customers away from competition, and it's not drawing customers away from competition; it's drawing sales away from us. Where we could have gotten two sales whether it be one today and one tomorrow, or two today we end up getting one sale. It's hurt us, and it's not profitable for them, and it's not accomplishing what they want to.

William S. Ohlemeyer, Altria Group vice president and associate general counsel, said in a statement, Philip Morris USA and Altria Group Inc. believe much of today's decision and order are not supported by the law or the evidence presented at trial, and appears to be constitutionally impermissible or infringe on Congress' sole right to provide for the regulation of tobacco products. Moreover, the conclusion that PM USA and Altria are reasonably likely to engage in future wrongdoing is flawed in light of the profound and permanent changes in the way cigarettes are marketed today, including requirements imposed by agreements with the state attorneys general and other voluntary and irrevocable changes made by our companies.

Altria shares were up almost 4% by the close of the market Friday.